ConocoPhillips' Alaska profits spurring new debate

Alaska’s most important oil company is reporting near-record Alaska profits for the year’s first quarter; meanwhile, its profits elsewhere lagged.

ConocoPhillips overall made $2.6 billion for the quarter ended March 30, down slightly from the same quarter last year, while making $616 million on its Alaska operations.

ConocoPhillips is closely watched because it is the largest oil producer in the state, but worldwide is somewhat smaller than BP and Exxon Mobil Corp., the other two major producers in Alaska. ConocoPhillips also makes more information about its Alaska operations public.

The unexpected decline caused the company’s stock to fall 4 percent on the news Monday, but the interest in Alaska was in the company’s strong profits locally.

“These earnings are phenomenal,” said Sen. Bill Wielechowski, D-Anchorage, who has opposed oil tax cuts proposed by Gov. Sean Parnell and says they are not needed.

This week’s ConocoPhillips profit report “shows that Alaska is an extremely profitable place to do business,” he said.

The strong profits ConocoPhillips earned in Alaska came due to a combination of high oil prices and an unusual increase in production.

That production increase, to 226,000 barrels per day in the first quarter of 2012, is above the 214,000 barrels per day produced in the same quarter of 2011.

That’s unusual, as the state’s prolific oil fields have been in a long-term decline that’s been the focus of much of the oil tax debate now going on at the Capitol.

Parnell has been saying Alaska’s production will decline 6 percent a year in the future, while his Department of Revenue is predicting a 3 percent annual decline over the next decade.

Oil wells and oil fields normally decline as they age, but additional drilling and other measures can slow that rate of decline.

Some legislators have been trying to determine what a normal field decline rate is, and accuse Parnell of exaggerating the decline. They’ve been looking for a way to offer tax incentives for keeping production above a normal field decline rate.

Parnell spokeswoman Sharon Leighow said without tax reductions companies will invest elsewhere and make more money.

“There is no dispute that production is declining, and at prices over $80 a barrel, our tax regime works against us,” she said.

“At current high prices, companies are taking their profits elsewhere for greater returns,” she said.

Legislative consultant.

The high profits show the North Slope’s big fields such as Prudhoe Bay and Kuparuk that are already producing oil don’t need the tax breaks Parnell is proposing, said Rep. Beth Kerttula, D-Juneau.

“The future is in the new fields and in the new production,” she said.

Giving tax breaks to drill where it is already highly profitable to produce oil will cost the state a great deal of money but provide little new benefit, she said.

“I don’t see the evidence behind (legacy field tax breaks) and I think the whole Legislature is beginning to see it that way,” she said.

“Alaska is already a very profitable region for ConocoPhillips, particularly if one is drawing the comparison with the Lower 48,” said Janak Mayer, a consultant from PFC Energy retained by the Legislature.

Mayer told the Senate Resources Committee they might need to provide some tax incentives, but risk “moving a lot of cash back to companies for currently highly economic activities,” he said.

ConocoPhillips’ first quarter earnings announcement includes information about the challenge that goal is facing. The company said it would invest $4.2 billion of its available cash this year in capital projects intended to produce more oil, and expects to spend $15 billion for the year worldwide.

At the same time, the company spent $2 billion in the first quarter buying back its own stock, and expects to spend $5 billion by the end of the second quarter.